A Massachusetts judge has denied a request by dealers for a preliminary injunction against Tesla Motors Inc., which will allow the automaker to operate its store in suburban Boston as the dealers' lawsuit against the company proceeds.

The ruling, filed Friday, is an early setback for the Massachusetts State Automobile Dealers Association and individual dealerships that sued Tesla on Oct. 16, claiming the electric-vehicle maker has violated Massachusetts' licensing, consumer protection and franchise laws. The lawsuit poses a challenge to Tesla's strategy of owning and operating its own retail stores, rather than granting franchises to dealers as other automakers do.

The dealers asked the Massachusetts Superior Court for a restraining order and injunction that would stop the Tesla-owned showroom in Natick, Mass., which opened Sept. 28, from doing "anything other than an unstaffed display of a locked automobile." To get an injunction in Massachusetts, as in federal court, plaintiffs must show they are likely to prevail in the case and will otherwise suffer irreparable harm.

Having no detailed knowledge neither of the relevant state laws nor of US precedence in such matters (I am from the Old world), my first thought would be that the dealers have a strong case. It would be great if a more enlightened forum member could give us a short overview of the legal basis for the case.

Thanks,
Tomas

Sudre_ | November 20, 2012

Actually I looked in to it very little but it does appear that other auto manufacturers have already tried what Tesla is doing and lost. The "It's a gallery only" does not work. The big difference here is Tesla can argue that no dealer will give Tesla a fair go.

Vall | November 20, 2012

from the same article

"Tesla may not yet recognize the value of the independent, franchised dealer system, but as its sales increase, NADA is confident it will re-examine its business model,"

Really? Will they re-examine their business model? And what happens if they don't ever recognize the "values" of the franchise model? NADA's confidence will be seriously butthurt probably. Or they will just MAKE them reconsider, they have a pretty good record of lobbying for special state laws to protect their interests it seems.

tomas.hutters | November 21, 2012

@Sudre_ : that was exactly what my stomach told me, i.e. that they (obviously) cannot use the "gallery only" argument. Any sensible law framework would need to be based on making manufacturer=reseller unlawful, all things being equal. I am not saying that this would be a reasonable or fair law framework (I tend to think that it is a very bad one in most circumtances), but this must be what Tesla is up against. I am not sure the "no fair go" argument is convincing, but let's leave it to Tesla's lawyers and pray...

mrspaghetti | November 21, 2012

Elon makes some pretty good arguments why Tesla's legal position is different from other auto manufacturers who may have tried similar tactics in the past.

I'm also a layman when it comes to legal matters, but I'm cautiously optimistic that the dealers don't have a strong case.

Vawlkus | November 21, 2012

Personally I don't think the dealers have a leg to stand on. All Tesla transactions are handled via the web to it HQ in CA. The local "salons" don't actually sell cars.

Then too, Elon's "conflict of interest" statement is a very valid one.

I'm no lawyer, but so far I'm not seeing the dealers winning this. Stranger things have happened, but unless something comes outta left field, all this is going to do is waste time and resources, which is probably the dealer's backup plan.

MB3 | November 21, 2012

Aren't there any laws that protect start-ups like Tesla from being strong armed by established de-facto monopolies like NADA? I want to ask my state/federal representatives look into it.

Enoch_Root | November 21, 2012

The MA law being used as the basis for the suit appears clearly defined in prior precedent cases, though not in the text of the law itself (and hence the reason it's being used by the plaintiffs). That definition favors Tesla, and that is what the judge seems to have based his denial of the motion on.

The actual text of the current decision makes clear the intent of these franchise laws: they are meant to protect a franchise car dealer from their own affiliated OEMs, not from competition from other OEMs. In other words, a local guy selling GM cars has a terrible bargaining position against GM itself, and so the laws help protect the GM dealer from GM coming to town and competing against their own franchisee. They are NOT meant to protect a GM dealer from a Toyota dealership opening up down the street. If this judge's reading of MA law holds up to any appeals, it will be clear that the only folks with standing (in MA at least) to sue Tesla for opening dealerships, are Tesla franchisees. Except of course Tesla has no franchisees.

-ER
(Not a lawyer or anything approaching one. But I did stay at a Holiday Inn Express last night.)

mrspaghetti | November 21, 2012

We must have some lawyers on the forums who can comment.

Todd R. Lockwood | November 21, 2012

Worst case scenario: Tesla spins off the dealer/service network to separate privately-held corporation that's under contract to Tesla Motors. There's always a work-around. But it seems like a lot of silliness for what would essentially be the same thing we've already got.

The dealers feel that they have made a capital investment and that they deserve to be protected by a level playing field. In larger markets, a dealer might pay millions just to get a franchise. (It's reminiscent of taxi cabs in NYC, where a hood medallion can cost 6-digits.) But this protection is not exactly what these non-compete laws provide. Dealers have expanded the interpretation to meet their own objectives.

Tesla also has a significant investment in its stores. The difference is that the non-compete laws simply don't apply in their case. The idea that Tesla is "getting away with something" is ridiculous.

Tiebreaker | November 21, 2012

@Enoch_Root got it right... I think. (I am not a lawyer either.)

@Sudre_ : other auto manufacturers had dealers, and they were competing against them. Tesla has no dealers.

@Todd R. Lockwood: The dealer's investment is for a particular car brand, and that investment is not endangered by Tesla. (the NYC cab analogy doesn't work, because the medallion is really for territory rights). What they really want is a piece of Tesla's pie. And also fear that their customers will start demanding the same treatment.

Alastair.Nantes | November 21, 2012

This is a unique situation to the USA, which is kind of funny given the free-market zealotry so pervasive there. There are no such laws in Europe (I guess the dealers don't have enough bribe money!)
I concur with the above points, the intent is to cost Tesla money and time, they don't expect to win (except maybe in Colorado). If at first you don't succeed, sue!
Alastair

CraigT | November 21, 2012

My understanding is that the genesis of the law 50 years ago was to protect consumers. The belief was that local dealers would ensure that consumers had a place to get their cars serviced. Local dealers also invested in their communities and politicians!

As such the law requires that auto manufacturers sell through dealerships and not directly to the consumer in 48 states. There are always workarounds though.

DouglasR | November 21, 2012

I read the decision, and I believe that TM has a very strong case. While a preliminary injunction is decided on the basis of weighing potential irreparable harm of the parties against the likelihood that the moving party will prevail on the merits, this judge did not even get to the question of irreparable harm. He concluded that the moving parties are unlikely to prevail on the merits because they lack standing to bring the suit in the first place. This conclusion is based on what appears to be a fairly clear holding of the Massachusetts Supreme Court (I did not read that case, nor did I read the underlying statute, except for what was set forth in the decision. Thus what I say here has to be taken with a measure of salt). If the plaintiff lacks standing, there will not even be a trial. TM will bring a motion to dismiss, and will likely prevail before this judge.

There are several other weaknesses in plaintiff's case. For example, the statute prohibits a manufacturer from owning or operating a motor vehicle dealership of the same line make as it manufactures. The statute further defines a "dealer" as anyone who sells motor vehicles to consumers or end users pursuant to a franchise agreement and who has obtained the appropriate license. It does not look to me as though TM will own or operate a dealership. Thus even if the plaintiffs had standing to sue, TM does not appear to be violating this statute.

I have a lot of caveats regarding the above analysis. The case might look very different after reading the statutes, cases, and most importantly, the plaintiffs' briefs. Also, this case is governed by Massachusetts law. The statutes and cases will be very different in other states. Nevertheless, I believe this decision looks very good for TM.

For what it's worth, I am a lawyer (retired), but commercial litigation was not my field.

david | November 21, 2012

Based on the Court's ruling on the Preliminary Injunction, the plaintiffs in this case are going to fail. The Order makes it very clear that the judge believes the statute was not enacted to help prevent competition, as these plaintiffs are trying to do, but instead was enacted in order to prevent abusive pricing by the manufacturers over their franchised dealers. At least in MA, this Order all but ends the issue. If the plaintiffs persist and attempt an actual lawsuit, they will be subject to sanctions including attorney fees and costs. I strongly doubt they will continue with this, because of that risk.

I am a Colorado lawyer. I am interested to see how this issue plays out in Colorado. I think I will volunteer my services free of charge to Tesla to defeat any such effort.

BYT | November 21, 2012

TM should then counter sue for all legal fees incurred from this case.

As a young fellow I worked sales at a new, and at a used car dealer(s). One Lincoln. One Toyota. Experience in the auto industry helped land a programming contract years later for a Toyota franchisee. Between the three jobs, I learned more about the business than I expected.

When NADA says Tesla will reexamine it's business model, that made shivers run down my spine. Does a shark have a lovely smile?

To our non US readers, we love free enterprise here. And remember, one of the first things that free enterprise does is make sure it has no competition.

What the dealers want is to get licenses to sell Tesla, getting a discount from the factory, then marking it up by 35% so they can let you negotiate them down by 20%. Net/net, is your Tesla will cost more at the dealer. Takes money to build all those dealerships and pay for all those cheap suits. When you shake hands with a car dealer, best to count your fingers. Just saying.

I for one am very glad we have an alternative to the adviserial negotiation model that car buying in the US defaulted to.

DouglasR | November 22, 2012

There is a legitimate basis for most of these dealer laws, which are designed to protect franchised dealers from unfair competition by the manufacturer of products they sell. A franchisee typically invests his own money to promote and sell a manufacturer's product. Historically, the franchisee was highly dependent on the manufacturer, and was subject to exploitation due to the wide disparity in their power. After letting the franchisee build up the market, a competing manufacturer could choke off the franchisee's supply or raise the wholesale cost of the product, thereby destroying the value of the franchise. This was considered unfair competition.

As david@hwkslaw.com says, these laws were not designed to protect dealers from competition by unaffiliated manufacturers. However, in some states, the dealers have attempted to turn these laws on their head in order to protect themselves against all competitors. Where the laws are poorly drafted or the courts have not set a clear precedent, or where the dealers have sufficient political power to write the laws in their favor, these laws can become a significant obstacle to innovative marketing models that might benefit consumers.

I do not think there is any basis for TM to countersue for legal fees. Nor do I think the plaintiffs would be subject to sanctions for simply remaining in the case. This was only a preliminary injunction, after all, and the case will continue until it is dismissed, or the defendant wins on summary judgment, or it goes to trial (which I think is highly unlikely). The bigger question is what will happen in states that do not have statutes and legal precedents like those in Massachusetts. Texas, for example, has made it very difficult for TM to do business. The delivery specialist apparently can't even be present when the car is delivered (according to reports on TMC). I'm sure TM has researched this problem and is prepared for it, but it is far from over.

lolachampcar | November 22, 2012

Go Texas. Gotta be different even if it is crazy different.

Disclosure: My Dad's side of the family are all from Texas.

Sudre_ | November 22, 2012

Considering Texas would have some serious problems if people stopped buying gas I can see why their government is so against the Model S.

mrspaghetti | November 22, 2012

I wouldn't say the govt of Texas is against the Model S per se. Last I heard the legislature had considered a sales tax exemption for EVs, so there are definitely diverse points of view here.

Brian H | November 22, 2012

DR;
How do you suppose all that would apply to the other suit (Fisker dealer wanting right to sell Teslas, too!).

These two new lawsuits have also come from two very different sources, the first is an existing Fisker dealership, and the other is an auto group that is looking to be granted a Tesla franchise to round out their business.

Enoch_Root | November 22, 2012

The Fisker dealer is the plaintiff in the MA suit whose initial motion was denied (the suit that this thread is about)

The other one the article mentions is the suit in New York. These are not two new suits, they are the suits under discussion In this thread and others for the past few months, and the ones that Musk reacted to with his blog post last month.

Not sure who you were referring to re: "doesn't really fit with what you were describing"

-ER

Brian H | November 22, 2012

The last para is an excerpt from the article. Should have italicized it. Been spoiled by the "quote" function in real forums!

The "not fitting" is wrt DR's post. The Fisker dude's effort is to carry Teslas; not the same as eliminating stores.

Tiebreaker | November 23, 2012

The Fisker dude's lawsuit is the same one, that just got boinked, not a separate one.

Enoch_Root posted above a link to the actual text of the decision. It is nicely explained there, even though there is a lot of legaleze...

DouglasR | November 23, 2012

Brian, I hadn't noticed that Fisker dude was a plaintiff in the suit (actually, I saw the name but thought it was a guy called Fisker Norwood -- doh!). In any event, I didn't read the complaint, and there was nothing in the decision to indicate that one of the plaintiffs wanted to be a Tesla dealer. The decision spoke only of plaintiffs' desire to enjoin TM from operating the Gallery in Natick.

There apparently is a second suit, but I haven't seen it.

Tiebreaker | November 23, 2012

@DouglasR, you are still right.

As an engineer, non-layer, what I see from the decision: "manufacturer, distributor or motor vehicle dealer" can claim and sue for damages. MSADA (Mass. dealers acssoc.) and Boyle (an individual) are neither, so no soup for them. Then Fisker and Connolly are dealers, but they are not affiliated with Tesla, so no soup for them either. And the purpose "to benefit the public" is not applicable here, quoting a previous case - public's interest is increased competition, existing dealers' interests is the opposite.